Why Your Credit Score Matters
Your credit score is a three-digit number that summarizes your credit risk. Lenders use it to decide whether to approve your loan applications and what interest rate to offer you. A higher score means you represent less risk, making you eligible for lower interest rates.
1. Pay Your Bills on Time
Payment history is the single largest factor in your credit score, accounting for 35% of the total. Even a single payment delayed by 30 days or more can cause a significant drop in your score. Set up autopay or calendar reminders to ensure you never miss a deadline.
2. Keep Credit Utilization Low
Credit utilization refers to the amount of credit you are using compared to your total credit limit. Ideally, you should keep your utilization below 30% on each card. For instance, if your credit limit is ₹1,00,000, try to keep your monthly balance under ₹30,000.
3. Do Not Close Old Credit Cards
The length of your credit history accounts for 15% of your score. Closing an old account shortens your average credit history age and reduces your overall available credit limit, both of which can negatively impact your score.
4. Monitor Your Credit Report for Errors
Errors on credit reports are surprisingly common. These could include accounts that do not belong to you, incorrect payment histories, or outdated negative records. Pull your free credit report annually and dispute any discrepancies immediately.
5. Limit New Credit Inquiries
Every time you apply for a loan or credit card, the lender performs a hard inquiry on your report, which temporarily dips your score. Avoid making multiple credit inquiries within a short period.